Jack_Brennan_media_release17oct07.pdf (PDF - 47KB)Sydney, 17 October, 2007 - Looking back at the major market events over the last 25 years, Jack Brennan Chairman and CEO of the Vanguard Group says there are three key lessons every investor should follow in any market environment to help ride out market volatility.
Speaking at a media briefing in Sydney today, Mr Brennan who has been with Vanguard for 25 years, said knowing what you own, why you own it, and being comfortable with what you own are the key lessons learned from the major market bubbles and scandals.
The last 25 year bull market has been a great time to be an investor, with the S&P/ASX All Ordinaries Index rising 15.5 per cent per year since 1982 compared to 11.7 per cent per year in the preceding years. During the same period, the S&P 500 Index had an average annual return of 14 per cent compared to a long term average of 8.8 per cent before 1982*.
The results were not confined to equities, with the Australian bond market returning 12.4 per cent during the bull market, far greater than the 3.8 per cent return in the preceding years.
Mr Brennan said, "The returns from the past quarter of a century have been significantly higher than those expected at the beginning of the period. It has been an amazing time to be an investor, and this should not be taken for granted."
Commenting on periods of market turbulence, particularly the recent sub prime events, Mr Brennan says, "There is nothing more valuable to an investor than a period of underperformance. It tests your principles and your belief in your principles. It tests your belief in yourself and your belief in your investment strategy."
"A simple rule of thumb to consider when investing is: if you can't see it, can't understand it, or can't explain the reason for owning it, it probably shouldn't be part of your portfolio. Many of the most successful and most sophisticated investors follow this advice."
Mr Brennan said over the years a number of new products, new ideas and new ways of investing have been touted, which sounded good at the time but turned out to be disastrous for investors.
"Recent high profile collapses demonstrate that investing in the 'next big thing' is not a certainty."
* Bull market dates: 31/7/1982 to 31/7/2007. Prior historical average returns are from earliest available index date to 31/7/1982. (Earliest data: S&P 500, 31/12/1925; MSCI EAFE, 31/12/1969; Lehman Ag, 30/1/1976). Source: Vanguard (FINS). Australian return data supplied by Andex. Earliest available data for share and bond markets 31/7/1957. Indexes for share market: Dec 1979, S&P/ASX All Ordinaries Accumulation Index; Statex Accumulation Index from 31 December 1971 to 31 December 1979; Prior to 1971 Sydney Exchange Indices as published in the Sydney Stock Exchange Journal. For bond market, Since Feb 1977 Commonwealth Bank All Series Greater than 10 years Bond Accumulation Index. Prior index returns calculated by Andex Charts using 10 year government bonds.
